China electric pivot deepens as Renault-Nissan integrates with Dongfeng on unprecedented scale

30 August 2017

30 August 2017 The Renault-Nissan Alliance has announced it is to share an SUV platform with long-time Chinese partner Dongfeng to design a new electric vehicle (EV), marking an unprecedented level of consolidation for a foreign manufacturer with a Chinese OEM. Alliance CEO Carlos Ghosn says the deal ′confirms our common commitment’ to push deeply into the Chinese market as government quotas force rapidly escalating growth in its EV market, the largest in the world.  Called eGT New Energy Automotive, the new joint venture’s commitment to sharing a vehicle platform marks a major step further in integration than most foreign carmakers have gone in their joint ventures, in what is by far the world’s largest car market. The Chinese government mandates foreign carmakers must form partnerships to sell in the country, in order to prevent its domestic carmakers being outcompeted from abroad, giving them access to foreign tech and expertise. Nevertheless, most foreign carmakers have been reluctant to share much of their tech with Chinese partners, concerned that it will be stolen or commercial secrets leaked. Chinese carmaker overseas plans also add to this reticence.  However, Renault-Nissan has been working with Dongfeng for years on traditional combustion engine cars, providing a confident foundation for the deal. This level of trust gives Renault-Nissan a key advantage over rivals, allowing it to maximise synergies with one of China’s largest carmakers.  Emphasising this competitive edge, Ghosn added the deal reinforces the Alliance’s ambitions to ′develop competitive electric vehicles for the Chinese market.’  China’s escalating EV quota system, which begins next year, will force 8% of carmaker sales in the country to be EVs in 2018, ratcheting up to 12% in 2020 and 20% in 2025. Volkswagen Group has described the quotas as extremely challenging, but achievable. China suffers from very poor air quality and pernicious smog in many of its major cities, and also wants to boost its energy security and internal investment by reducing its reliance on foreign oil, including from Russia. While China’s EV revolution is expected to generate much of its electricity from dirty coal, this will mean much of the emissions will be displaced away from clogged inner cities. Some foreign governments including Germany also believe China is aiming to get to EVs first to gain a greater foothold in the market going forwards compared to what it has for combustion engine cars.  Renault-Nissan is not the only OEM racing to tap into the upcoming Chinese revolution, with Ford forming a joint venture with small player Zotye Automobile last week and Daimler working with Chinese giant BAIC – whose joint venture contains Daimler’s largest car production centre worldwide. Volkswagen Group, the largest foreign player in the country – with China sales forecast to account for approaching half the entire group’s vehicle sales –  formed its third joint venture in the country in May with JAC for electric vehicles, complementing existing schemes with FAW and SAIC.  As it continues to combat its heavily polluted cities, China is also expected to launch a zero emission vehicle campaign later this year, modelled after a successful initiative in liberal tech hub California in the US. China is steadily moving in favour of mandates as it removes costly subsidies, with this angrily spurred on further by a subsidy scandal involving several carmakers uncovered last year.  China’s deep meddling in its domestic car market is expected to continue, as it tries to maintain its domestic car industry – which while seeing an upturn recently still struggles despite government support. Only three of the top ten car brands in the first half of 2017 were from Chinese companies, according to data from LMC Automotive, with top Chinese players Changan Automotive and Volvo-owner Geely only both having shares of 4.6% – only a third of best-seller Volkswagen Group. China policies continue to aim to curb foreign OEM dominance as the government ultimately hopes to make its domestic carmakers globally competitive, including encouraging them to buy established foreign brands, which has been key to Geely’s growing foothold in Europe.   Some analysts believe that the Chinese joint venture system is outdated, and is now disincentivising Chinese carmakers from expanding abroad and developing their own brands, since they make so much money selling vehicles under the foreign brands of their joint venture partners. Core growing Chinese competitor India, whose market is predicted to ultimately rival that of China, due to its faster-growing middle classes, has a thriving domestic industry despite lacking such restrictions.